On party financing

30/08/201103/09/2011

A debate is looming in the United Kingdom concerning the issue of funding for political parties. There have been attempts in the past to address this issue, most recently in 2007, but those negotiations failed because the parties were unable to agree a cap.

Current situation

There is currently no limit to the amount an individual or organisation can donate or lend to an organisation/individual. However, the money must come from a permissible source if it is above £500 (about 797 CAD).

When organisations/individuals receive a donation or a loan above £500, they must verify that the donor or lender is permissible.

Under Section 54 of the Political Parties, Elections and Referendums Act 2000 (PPERA), eligible donors or lenders are:

an individual registered in a UK electoral register (including bequests)

a UK registered company which is incorporated within the European Union and carries on business in the UK

a GB registered political party

a UK registered trade union

a UK registered building society

a UK registered limited liability partnership that carries on business in the UK

a UK registered friendly society

a UK based unincorporated association that carries on business or other activities in the UK

certain kinds of UK-based trusts

All parties contesting a relevant election are subject to limits on expenditure incurred in the ‘regulated period’ in advance of an election. These limits are separate to the limits on election expenses incurred by individual candidates standing at elections. At Parliamentary general elections, a party’s spending limit is either:

£30,000 (47,855 CAD) multiplied by the number of constituencies being contested;

whichever is the greater. (source: the Electoral Commission) This means that in a general election, such as the May 2010 election, if a party contested all 650 constituencies, its campaign spending limit would be £19.5 mn (31.1 mn CAD).

Proposed Changes

Media reports state that the Committee on Standards in Public Life, an independent public body which advises government on ethical standards across the whole of public life in the UK, is recommending a new limit on donations, introducing an annual cap with figures ranging from £50,000 (79,692 CAD) to £10,000 (15,943 CAD) being considered. The Committee’s report is expected in October, but if they do proceed with an annual cap, this will have major implications for UK political parties, and in particular, Labour.

Labour is almost completely dependent on donations from trade unions for its funding. As George Eaton notes in this piece in the New Statesman:

The latest party funding figures have just been released and the most notable thing, as usual, is Labour’s remarkable dependence on the trade unions. In quarter two, the party received £3,093,094 in donations, £2,651,589 or 85.7 per cent of which came from the unions. Unite, the country’s biggest union, was alone responsible for 24.8 per cent (£765,628) of all donations. Of the £5.9m the Labour Party has received across both quarters this year, £5.2m or 88 per cent came from the unions.

Such a cap would also impact the Conservative Party, which receives most of its funding via large donations from businesses and other organizations, but not to the same extent that it would hurt Labour. According to the Guardian:

An analysis of five and a half years’ worth of donations to the parties reveals the move would most dramatically affect Labour’s funding base. If the £50,000 limit had been in place over the period, Labour’s donations would have been reduced by 72%, the Conservatives’ by 37% and the Liberal Democrats’ by 25%.

Canada

In Canada, things are very different. Only an individual who is a Canadian citizen or permanent resident of Canada may make political contributions:

up to $1,000 (627 GBP) in total in any calendar year to a particular registered party

up to $1,000 in total in any calendar year to the registered associations, nomination contestants and candidates of a particular registered party

up to $1,000 in total to a candidate in an election who does not represent a registered party

up to $1,000 in total to the contestants in a particular leadership contest

Donations from all other sources, including unions and corporations, are illegal.

The maximum amount that is allowed for the election expenses of a registered party for an election is calculated in two steps:

Step 1: Multiply $0.70 (about 44p) by the number of names on the preliminary lists of electors for electoral districts in which the registered party has endorsed a candidate or by the number of names on the revised lists of electors for those electoral districts, whichever is greater.

Step 2: Multiply the result of step 1 by the inflation adjustment factor that is in effect on the day of the issue of the writs for the election.

You can see the final campaign expense limits for each registered party for the most recent general election here. The three main parties (the Conservatives, NDP and the Liberal Party) averaged about $21-mn each (13.1 mn GBP). (Source for all of the above Elections Canada.)

As well, Canada currently has a per vote subsidy which is paid to political parties. Currently, the subsidy is just over CDN$2 per vote (1.25 GBP) if a party garners more than 2% of votes cast nationally. I have written about the vote subsidy in this post, and so won’t repeat myself here. The current Conservative Government is planning to phase out the vote subsidy, however.

According to the Guardian article, the Committee is looking at state financing for political parties, but given the UK’s current economic problems and the austerity measures introduced by the Government, it is thought that this would be very difficult to bring forward. They are also looking at how to treat the issue of union donations:

The debate now appears to rest on whether union money should be treated as single large donations or as multiple small donations from individual members’ affiliation fees, and whether those affiliation fees should automatically go to Labour.

Union members could be given the option to donate their fee to another party in what would be the most radical shakeup of Labour’s relationship with the unions in a generation, which would be fiercely opposed by union leaders.

As might be expected, Labour suspects the move towards a donation cap is an attempt to weaken it, since it would be the party most negatively impacted by such a move. Similarly, the opposition parties in Canada also suspect the Conservative Government’s plans to eliminate the vote subsidy is politically motivated since they are more dependent on the subsidy than is the Conservative Party. However, in the UK, any changes introduced will be achieved only through all-party negotiations and agreement. The reason no reforms were achieved in 2007 is because the parties could not come to an agreement. Deputy Prime Minister Nick Clegg will start all-party talks once the Committee’s report is released in October:

A Liberal Democrat spokesman insisted that the coalition would not impose a deal on the parties. “The history of party funding reform is littered with corpses. You have to do it in consultation with the other parties,” the spokesman said.

This is the right approach to take. As I wrote in my post on the vote subsidy, it should not be left to the government of the day (or one political party) to set political financing rules that affect all parties – it should be a multi-party process.